Sheinbaum: The future of fin-tech

Predictions are a dicey business. Even with the best intentions (and the best of research), our desire to have things happen a particular way generally outweighs what actually does happen.

Think back to the closing months of 2014: OnDeck and Lending Club went public and everyone was envisioning that 2015 would be a banner year for initial public offerings by alternative finance companies. Yes, a number of Alt-Fi and Fin-Tech companies raised lots of private capital in 2015 (including my company, Bizfi), but IPOs? Not so much.

Payments processor First Data, the mobile payments company Square, and credit reporting company TransUnion had the field pretty much to themselves.

There will probably be some Fin-Tech IPOs in 2016, but to get an accurate picture of the industry, we need to focus on the things which are likely to really shape its future:

Bringing Back the Human Element

While technology has made it possible over the years to automate more of the funding process for small businesses, it’s still important for a funder to speak with its customer. A simple conversation decreases fraud and brings a more personable element to the process.

For borrowers, finding the right lender is a big decision and not one they want to go through without speaking to someone about their options.

The challenge for Fin-Tech companies will be to not only find qualified representatives — no small matter in the current tight labor market in the U.S.-but also training them to have the most productive conversations with business owners. Big data can tell us a lot about the ability to repay, but well-crafted questions may help us to better understand the willingness to repay.

Partnering With Big Banks

There have been some large announcements in the past year involving Fin-Tech companies partnering with traditional financial institutions. Partnerships between FinTech companies and traditional banks just make sense.

For the banks, partnering with established FinTech players will be far more cost-effective than building their own platforms from scratch or trying to cram new technology into creaky legacy systems. With a partnership, the banks also get to test-drive technology that could be implemented far more broadly than just their small business segment.

For the FinTech companies, a bank partnership could be the answer to one of their thorniest management dilemmas: How to uncover qualified leads in a cost-effective way.

Consolidation

In 2015 it seemed there was a new funding company cropping up every day. DealIndex released a study in July 2015 which identified more than 1,250 crowdfunding platforms around the globe, and Grant Thornton reported that China alone now has more than 600 P2P funders.

Those kind of numbers just beg for consolidation and the ranks of all segments of the FinTech industry in all countries will shrink in 2016.

The cost and complexity of maintaining the best technology will claim some, while others will likely fall to the pressures of an increasingly competitive marketplace.

Who will be first? That is anyone’s guess.

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Stephen Sheinbaum is the founder of Bizfi, a connected online marketplace that offers many kinds of alternative funding. Since 2005, the family of companies have invested in proprietary technology that has helped them to originate more than $1 billion in funding to more than 20,000 small businesses.